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Judgmental Overconfidence and Trading Activity

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  • Gelinde Fellner

    ()
    (Ulm University, Institute of Economics)

  • Sebastian Krügel

    ()
    (Max Planck Institute of Economics, International Max Planck Research School "Uncertainty" and Ulm University)

Abstract

We investigate the theoretically proposed link between judgmental overconfidence and trading activity. In addition to applying classical measures of miscalibration, we introduce a measure to capture misperception of signal reliability, which is the relevant bias in the theoretical overconfidence literature. We relate the obtained overconfidence measures to trading activity in call and continuous experimental asset markets. Our results confirm prior findings that classical miscalibration measures are not related to trading activity. However, misperception of signal reliability is significantly linked to trading volume, particularly in the continuous market. In addition, we find that men trade more than women at high levels of risk aversion, but the gender trading gap vanishes as risk aversion lessens. The reason is that the trading activity of women seems to be more sensitive to risk attitudes than that of men.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2012-057.

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Date of creation: 19 Oct 2012
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Handle: RePEc:jrp:jrpwrp:2012-057

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Keywords: Overconfidence; Trading activity; Signal perception;

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  1. Gerlinde Fellner & Boris Maciejovsky, . "Risk Attitude and Market Behavior: Evidence from Experimental Asset Markets," Papers on Strategic Interaction 2002-34, Max Planck Institute of Economics, Strategic Interaction Group.
  2. Mark Grinblatt & Matti Keloharju, 2000. "What Makes Investors Trade?," Yale School of Management Working Papers ysm146, Yale School of Management, revised 01 Nov 2001.
  3. Fellner, Gerlinde & Krügel, Sebastian, 2012. "Judgmental overconfidence: Three measures, one bias?," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 142-154.
  4. Catherine C. Eckel & Philip J. Grossman, 2008. "Sex and Risk: Experimental Evidence," Development Research Unit Working Paper Series archive-09, Monash University, Department of Economics.
  5. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  6. Caballe, Jordi & Sakovics, Jozsef, 2003. "Speculating against an overconfident market," Journal of Financial Markets, Elsevier, vol. 6(2), pages 199-225, April.
  7. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
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